Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

Halvorsen, Elin; Hubmer, Joachim; Ozkan, Serdar; Salgado, Sergio

doi:10.20955/wp.2023.004

Working Paper Revision

Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

Abstract: We use 1993–2015 Norwegian administrative panel data on wealth and income to study lifecycle wealth dynamics. At age 50, the excess wealth of the top 0.1%, relative to mid-wealth households, is accounted for by higher saving rates (34%), initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the residual. One-fourth of the wealthiest—the “New Money”—start with negative wealth but experience rapid wealth growth early in life. Relative to the “Old Money”, the New Money are characterized by even higher saving rates and returns, and also by higher labor income.

Keywords: wealth inequality; lifecycle wealth dynamics; rate of return heterogeneity; bequests; saving rate heterogeneity;

JEL Classification: D14; D15; E21;

https://doi.org/10.20955/wp.2023.004